As Investors Turn Socially And Environmentally Conscious, A New Asset Class Is Gaining Ground

A green bond — a fixed income product with proceeds used to finance projects or activities that help the environment, was issued by Singaporean real estate developer City Development Limited in one of its latest efforts to raise funds.

“Green financing offers us an alternative financing stream. There is an increased interest in socially responsible investments and a growing demand for relevant products,” Sherman Kwek, CDL’s deputy chief executive, said in a statement earlier this month.

And as the Southeast Asian city state seeks to grow its marketplace for sustainability-oriented investments, the company’s issuance, which raised 100 million Singapore Dollars ($71.1 million), is the first in Singapore.

After the Paris climate change agreement was reached in December 2015, demand for such products saw rise at a faster pace even though they are not new in the finance world. Nearly 200 countries will be working to reduce greenhouse gas emissions with the aim of containing climate change under the accord which came into effect in November 2016.

green bond issuance has the potential to hit $206 billion in 2017 and such issuance rose 120 percent in 2016 to a record $93.4 billion, Moody’s Investors Service said in January this year.

A report published last month by the Global Sustainable Investment Alliance (GSIA) showed that socially responsible assets under management grew to $22.9 trillion at the start of 2016, 25 percent more than 2014, reflecting the wider global appetite for green investment products, commonly known as sustainable or impact investments. 26.3 percent of total managed assets could comprise of such assets.

environment, social and governance (known in the industry as ESG) factors are now increasingly being considered by global investors. From the melting Arctic ice caps to South east Asia’s transboundary haze pollution, that shift comes alongside growing awareness of climate issues.

“Impact investing makes sense to investors because it allows them to diversify their portfolios with a new asset class… As years pass and more actors are participating in impact investing, this inspiration is paired with results that show that positive impact can be generated alongside financial returns,” said Durren Shahnaz, founder of Impact Investment Exchange, a platform that helps social enterprises raise funds.

In Europe, the region that is leading the pack with $12 trillion worth of assets under management, legislation plays a big part in promoting sustainable investing. According to the GSIA report, that represents 52.6 percent of total assets held by European firms

“The Nordics are certainly leading the way in terms of ESG integration. The U.K. and the remainder of continental Europe are also fairly advanced,” said Eric Cockshutt, head of responsible investment of Swiss asset manager Unigestion, offering the example of French legislation that requires pension plans to disclose the carbon footprint of their holdings.

Meanwhile, in sustainable assets, less than 5 percent of their holdings — $526 billion, are present with Asian firms. Arnout van Rijn, chief investment officer at Robeco Asia Pacific said that as pollution issues have raised awareness of the impact that companies’ value chains can have on the environment, the region offers significant growth opportunity.

“Across this region the landscape is beginning to change too, in part driven by the increasing awareness of the massive capital needed to finance the region’s transition to a low-carbon future… In China there is a remarkably active interest for the topic among the large institutions,” he said.